The Chennai Bench of the National Company Law Tribunal (NCLT) has held that where the Deed of Guarantee is a continuing guarantee, the claim can remain enforceable against the guarantor beyond three years from the date of default of the principal borrower, and limitation against the guarantor would commence when the guarantor defaults in fulfilling his obligations under the guarantee deed after invocation. On the facts, since the guarantee against the respondent was invoked on October 15, 2022, the Section 95 petition filed on June 09, 2023 was within limitation.
The Tribunal further held that the liquidation of the corporate debtor and disbursal of part proceeds to the financial creditor pursuant to settlement among creditors did not discharge the personal guarantor, because the liability of the surety arises out of an independent contract and is not absolved by release or discharge of the principal borrower through an involuntary process such as liquidation or insolvency. It also held that resignation from the company does not absolve a guarantor from liability under the guarantee agreement unless he is discharged.
The Division Bench comprising Sanjiv Jain (Judicial Member) and Venkataraman Subramaniam (Technical Member) observed that the corporate debtor had availed the credit facilities on January 24, 2014; that the respondent had given a Declaration-cum-Undertaking and executed the Deed of Guarantee on the same date; and that the corporate debtor’s account became NPA on November 01, 2017. It further noted that while a Section 13(2) SARFAESI notice dated November 03, 2017 was issued to the corporate debtor and the other personal guarantor, no such notice was issued to the respondent at that stage, and the notice invoking the respondent’s guarantee was issued only on October 15, 2022.
The Tribunal also noted that insolvency proceedings against the corporate debtor had been initiated in 2018 within limitation, that the corporate debtor went into liquidation, and that the petitioner received Rs. 1.03 crores from sale proceeds pursuant to a settlement among creditors. The Tribunal observed that release or discharge of the principal borrower by operation of law, including liquidation or insolvency, does not absolve the personal guarantor of liability, which arises from an independent contract of guarantee. It further observed that resignation of the respondent from the corporate debtor on October 15, 2016 would not absolve him from liability under the guarantee agreement unless he was discharged.
The Tribunal reproduced and relied upon Clauses 3, 12 and 30 of the Deed of Guarantee, and observed that the guarantee was a continuing guarantee and coextensive with the liability of the principal debtor. It held that, being a continuing guarantee, it could be invoked at any stage, and that the rights of the financial creditor against one guarantor remained in full force notwithstanding any arrangement with another guarantor. The Tribunal also noted that the other guarantor had acknowledged the debt by email dated February 28, 2024 in separate proceedings.
Briefly, Aditya Birla Finance Limited filed a petition under Section 95 of the Insolvency and Bankruptcy Code, 2016 against G. Thiyagarajan, the personal guarantor of Velohar Infra Private Limited, seeking initiation of insolvency resolution process against him. The corporate debtor had availed loan facilities under a loan agreement dated January 24, 2014 for Rs. 3.50 crores, and the respondent, along with another guarantor, executed a Deed of Guarantee dated January 24, 2014. The corporate debtor defaulted, its account was classified as NPA on November 01, 2017, and the debt/default amount stated in the petition was Rs. 3.65 crores. The petition under Section 95 was filed on June 09, 2023, and an Interim Resolution Professional was appointed on March 08, 2024, who thereafter filed a report under Section 99 recommending initiation of insolvency proceedings against the personal guarantor.
The respondent opposed the petition principally on limitation and discharge grounds. He contended that the default occurred on November 01, 2017, whereas the petition was filed only on June 09, 2023; that no Section 13(2) SARFAESI notice had been issued to him in 2017; and that invocation of guarantee took place only later. He also relied on a compromise/withdrawal in appellate proceedings relating to the corporate debtor’s liquidation, under which the petitioner received Rs. 1.03 crores, and argued that this discharged the surety’s liability. The petitioner, in rejoinder, asserted that the Deed of Guarantee was a continuing guarantee, that the guarantee was invoked on October 15, 2022, and that limitation against the guarantor would commence from the guarantor’s default in complying with the demand under the guarantee deed.
